Canada’s economy is poised to move out of the slow lane next year with trade and business investment supporting growth, the chief economist of the Royal Bank of Canada says.

RBC, and Canada’s biggest bank is known, predicts that the economy could go “a bit better than the speed limit,” with growth of 2.4 per cent next year, Craig Wright said during the bank’s 2013 Global Outlook conference call on Monday.

RBC’s forecast is more optimistic than that of other banks, which are predicting an expansion of about 2 per cent in Canada for 2013.

Improving auto and housing sectors in the U.S. will support Canadian trade and exports, Wright said.

By contrast, on this size of the border, the real estate market will moderate. On the bright side, debt-to-income will also stabilize.

“One of the big worries in Canada is the high debt levels. The debt levels by themselves don’t cause a debt crisis, but they leave you vulnerable to shocks,” Wright said, adding that RBC expects a “cooling” rather than a “collapsing” housing market.

In the private sector, businesses are still sitting on cash, waiting out the U.S. fiscal cliff. “As the cloud lifts we will see continued support from the investment side, which has been strong,” Wright said.

RBC expects the Bank of Canada to start increasing interest rates again by the end of next year, with the overnight rate, now at 1 per cent, rising to 1.5 per cent by the close of 2013.

The U.S. fiscal cliff, the slate of automatic tax hikes and spending cuts that will take automatically take effect early in the new year unless law makers come up with an alternative plan, is keeping a lid on U.S. growth, said Tom Porcelli, chief U.S. economist with RBC.

“If we weren’t talking about the fiscal cliff at all, I would be talking about 2 per cent growth which would be a great outcome. Unfortunately this is the single biggest known potential shock,” Porcelli said.

Even worse, he added, “there’s very little clarity at this point. The noise to information ratio right now is stunningly high.”

Porcelli expects that lawmakers will eventually reach an agreement which will include some increase in tax rates on the wealthy. Growth in the first half of the next year could come in around 1 per cent and increase to 2 per cent for the second half, he said.

RBC economists do not expect a happy New Year for Europe.

“Is it a happy New Year in Europe? Not really, but 2013 should be able to build on the economic and political progress in 2012. It will certainly be better than 2011,” said Jens Larsen, chief European economist.

There is reason to be optimistic, he said.

Greece has been through two rounds of debt relief and the troubled euro currency remains intact. Portugal, Ireland, and Italy are sticking to their reform programs and in Spain, the government is “getting its hands around banking sector programs,” Larsen said.

There is also more confidence in the European Central Bank, which kicked off 2012 with record injections of liquidity.

Meanwhile, emerging markets seem to be settling into “new normal” growth rates, Nick Chamie, global head of foreign exchange strategy and emerging markets research at RBC.

The bank estimates growth of about 4.5 per cent for these markets in 2012 – that’s much better than North America and Europe, but low for emerging markets.

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